Mergers and acquisitions (M&A) are terms commonly associated with corporate transactions. The influence these complex transactions have extend far beyond the boardroom, such as, for example, significantly impacting family law matters like divorce and asset division.
In this blog, we’ll explore the practical connections between M&A transactions and family law, shedding light on how these corporate maneuvers can profoundly affect the financial aspects of marital dissolution. It’s a practical examination of the intersections between these two seemingly distinct worlds, showcasing the tangible consequences that M&A deals can have on families navigating the challenges of divorce and revealing the surprising ways in which business decisions can shape personal lives.
Valuing Marital Assets
One of the primary ways M&A intersects with family law is in the valuation of marital assets. When a married or non-married couple, who fall within the purview of the Family Property Act (Alberta), decide to separate, their shared assets, including businesses, become subject to division between them. If one or both partners have a stake in an incorporated company that has undergone M&A activities during the marriage, the valuation process becomes far more complex.
M&A deals can also have a substantial impact on a business’s value. An acquisition that enhances a corporation’s worth may result in a larger family asset pool to be subject to division.. Corporate lawyers in Calgary and financial experts often collaborate to assess the true value of a business, taking into account any M&A-related changes.
Equitable Distribution and Marital Contributions
Family law courts aim for an equitable distribution of marital assets as this is the starting point outlined in provincial legislation. The Court considers various factors, including property obtained or maintained by either party, whether in joint or sole names.
When M&A transactions positively impact the value of a business, the other spouse likely has a legitimate claim to a portion of the increased value that family asset.
Hidden Assets and Forensic Accounting
One partner may attempt to conceal or undervalue business interests affected by M&A activities to gain an advantage in property division. This often necessitates the involvement of forensic accountants or financial experts to uncover hidden assets or assess their true value accurately. These experts, and the reports they generate, can be costly so it is important to consider your position regarding who should bear the burden of that expense.
Prenuptial and Postnuptial Agreements
Prenuptial and postnuptial agreements are legal documents that can significantly impact how M&A-related assets are handled in the event of a divorce or dissolution of a common-law relationship. These agreements often outline the terms for the division of property, including businesses, and can help mitigate disputes by providing clear guidelines for asset allocation.
Yet another consideration will be if there are agreements with any Third Parties related to the business as these may also determine how much value your partner is entitled to in the even of the dissolution of a personal relationship.
Spousal Support Considerations
M&A transactions can also substantially influence the calculations and considerations surrounding spousal support. When one spouse substantially benefits from a business transaction, it can potentially increase their income and therefore impact the amount of spousal/partner support they may have to pay in their divorce or separation process.
Indeed, if a partner does not take personal income and intentionally leaves financial value in the corporation unnecessarily, a Court may impute a higher income to that person for the purposes of determining their Guideline Income when conducting spousal/partner support calculations.
While mergers and acquisitions are traditionally associated with corporate law, their reach transcends the boundaries of the business realm. Within the sphere of family law, especially amid divorce or separation proceedings, assets associated with M&A activities often emerge as central points of dispute and valuation. Recognizing the impact upon the division of marital or family assets, valuation assessments, spousal support considerations, and the crafting of legal agreements is of paramount importance. This underscores the critical necessity for obtaining expert guidance and financial disclosure between parties to obtain an equitable result according to law..
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